Johannesburg, 29 Oct 2014 — Global Credit Ratings has assigned national scale ratings to Safari Investments (RSA) Limited of BBB(ZA) and A2(ZA) in the long term and short term respectively; with the outlook accorded as Stable. The ratings were finalised in July 2014, but were initially maintained as confidential.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to Safari Investments (RSA) Limited (“Safari”) based on the following key criteria:
Safari has developed a portfolio of dominant retail centres, focussed on the high growth township areas. The superior performance of these centres is evidenced by negligible vacancies, higher than average sales densities and the strong rental escalation achieved over the past three years. Moreover, rental income is largely underpinned by long term leases from national retailers. Nevertheless, with only 4 centres, the fund is highly concentrated and small in the listed property context, constraining the rating somewhat.
Historical rental income growth has been robust, albeit that operating profit growth has lagged somewhat due to the treatment of maintenance costs. Going forward budgets indicate strong rental income growth, driven by expanding GLA and favourable rental escalations. Combined with the structural advantages of being a REIT, this should see operating profit rise at a faster rate.
Using the proceeds of the listing, all debt was fully repaid. However, the fund maintains R600m in available debt facilities, which are likely to be used to fund ongoing projects. Nevertheless, the LTV is not expected to rise above the 30% to 40% range. While debt to EBITDA could register above the 400% benchmark, the metric will decrease as earnings from projects materialise.
Safari’s bias towards greenfield development projects is inherently higher risk, albeit that cognisance is taken of the conservative, phased nature of development activity, as well as management’s strong track record in successfully bringing new projects to fruition. This risk is exacerbated by the increasingly challenging retail environment, impacted by slowing consumer spend and a substantial increase in new centres in the development pipeline.
Upward rating migration is dependent on stable medium to long term growth in the portfolio. The successful completion of the Swakomund projects, as well as other pipeline projects would be positively considered to the extent they contribute strongly to earnings. Conversely, given the small size of the fund, underperformance at any centre could negatively impact group earnings and credit protection metrics. Delays and problems with any of the developments would also be negatively considered, particularly if they result in cash drain and rising gearing.
Sector Head: Corporate & Public Sector Debt Ratings
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, August 2014
Criteria For Rating Property Funds, July 2014
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating Was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Safari Investments (RSA) Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Safari Investments (RSA) Limited with no contestation of the rating.
The information received from Safari Investments (RSA) Limited and other reliable third parties to accord the credit rating(s) included the Pre Listing Statement, 2014 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year budgeted financial statements as contained in the Pre Listing Statement, full details of the property portfolio, as well as other industry specific information
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.